Hammerson yet to nail a catalyst that unlocks value for shareholders

Monday, July 29, 2019 - 13:26

Hammerson’s shares continue to look very cheap on both a dividend yield and net asset value (NAV) basis, its prime outlet sites are proving their worth and the company continues to shift its tenant mix away from the stricken high-street fashion sector, but investors don’t seem to want to know,” says Russ Mould, AJ Bell Investment Director.

“Even a share price that stands at a 60% discount to net asset value does not appear enough to stir interest. The problem is that rents and net asset value are still dropping. Rental income fell 12% year-on-year in the first half and the NAV per share figure fell 12% to 685p, the lowest figure since the end of 2015. This negative momentum leaves the stock without a catalyst, as it just adds to investors’ concerns that the gap between the share price and NAV will close through the NAV going down rather than the share price going up.

Source: Company accounts

“A bid from France’s Klepierre didn’t get the shares going for long an attempt to double-down on shopping centres through the purchase of INTU last year hurt the share price rather than helping it. Any sign of stabilisation in NAV could be a trigger for share price gains, as no-one seems to be expecting that, despite the 96.7% occupancy rate, shift to mixed-use developments and plan to reduce the £3.4 billion net debt pile by selling assets. Less debt means less risk and less risk can mean a higher valuation, or at least provide additional protection should there be an unexpected downturn in trading.

Source: Company accounts

“Even merger and acquisition activity in the real estate investment trust sector has failed to stir sustained interest in it, following Londonmetric’s bid for AJ Mucklow, approaches for Helical Bar and unsuccessful attempts to snap up RDI International, as well as INTU and Hammerson itself.

“Barring a sudden upward shift in UK economic momentum, Hammerson may therefore be one of those stocks that is cheap and stays cheap for a while, as investors ponder whether it is a value trap or a big opportunity. The big discount to NAV is not a huge vote of confidence and neither is the 9%-plus dividend yield, assuming an unchanged annual distribution of 25.9p.

  Share price discount to historic NAV   Dividend yield 2019E
Safestore 58.10% Newriver  12.00%
Big Yellow 38.30% RDI 9.50%
Londonmetric Property 20.60% Hammerson 9.40%
SEGRO 15.10% Hansteen 6.00%
TRITAX Big Box  3.20% British Land 5.90%
Harworth 1.70% Town Centre Securities 5.80%
St. Modwen (10.90%) LandSec 5.60%
Hansteen (11.00%) Workspace 4.60%
Shaftesbury (17.40%) TRITAX Big Box  4.40%
Great Portland Estates (18.70%) Londonmetric Property 4.10%
Derwent London (19.30%) Big Yellow 3.50%
Helical (24.50%) CLS 3.20%
Workspace (24.90%) Safestore 2.70%
CLS (27.90%) SEGRO 2.60%
Capital & Counties (30.80%) Derwent London 2.40%
LandSec (37.20%) Shaftesbury 2.10%
Newriver  (38.20%) St. Modwen 1.90%
British Land (40.80%) Great Portland Estates 1.80%
Town Centre Securities (43.50%) INTU 0.90%
RDI (45.60%) Harworth 0.70%
Hammerson (60.50%) Capital & Counties 0.70%
INTU (71.40%) Newriver  12.00%

Source: Refinitiv data, Sharecast, historic NAVs from most recent company accounts, dividends based on consensus analysts’ forecasts

“The muted response to Hammerson’s numbers sits in marked contrast to the warm reception given to FTSE 100 REIT peer SEGRO’s interims last week. This reflects ongoing investor enthusiasm for pockets of the real estate market – notably warehousing and any firms that facilitate e-commerce, as well as self-storage and niche brownfield redevelopment specialists. These companies are valued at small discounts to net asset value, or even enjoy premium ratings, and investors are generally demanding lower dividend yields from them as they are seen as lower risk.

“Meanwhile, investors are fighting shy of real estate firms which have exposure to physical retailers, the City of London and newbuild developments in the nation’s capital. With the occasional exception, these stocks tend to trade at substantial discounts to net asset value and have to offer high dividend yields to compensate shareholders for the risks (perceived or real) associated with holding them.”

These articles are for information purposes only and are not a personal recommendation or advice.


The chart of the week is written by Russ Mould, AJ Bell’s Investment Director and his team.